One of the most popular contentions in the buying vs. renting debate is that homeowners build wealth over time, while renters do not build equity with their monthly payments. According to the Federal Reserve, in 2016 the discrepancy between homeowners and renters was approximately $220,000 in favor of homeowners. Homes tend to appreciate in value and as the borrower repays the mortgage, they gradually build equity.
“Though there will always be discussion about whether to buy or rent, or whether the stock market offers a bigger return than real estate, the reality is that homeowners steadily build wealth. The simplest math shouldn’t be overlooked.”
—Lawrence Yun Chief Economist, National Association of Realtors
The five factors that contribute to the accrual of wealth through homeownership:
- the forced savings imposed by a required monthly mortgage and down payment,
- homes’ appreciation in value over time,
- federal income tax breaks including mortgage interest and property taxes,
- financing with a mortgage increases the returns of owning a home,
- and homeowners are not subject to rent inflation, a fixed-rate mortgage payment stays the same.